Puerto Rico’s Solution

Imagine a World

Jurassic World hit the $1 billion mark by June 25, only 13 days after its debut in theaters. Yea, ridiculous. Imagine what a real life Jurassic World could bring in revenue. We’re talking Disney money. All we need is the perfect location—ah, but of course, Puerto Rico!

The gorgeous terrain has not been able to keep Puerto Rico’s economy from tanking in the last eight years. The island’s Gross Domestic Product and Gross National Product (we’ll break these down later) has seen negative growth. The expansion of government programs and Uncle Sam’s cash injections have only backed the economy into a corner, and, as a result, the government is about to default on $72 billion worth of government debt.

Late government budget cuts, unfavorable tax policies, stagnant wages, and high unemployment have spurred Puerto Ricans to flee the homeland. Why is the number one spot for our Caribbean Dinopark going through all these financial troubles and why does it seem like it’s too late to fix this mess?

Puerto Rico Has All The Ingredients

Puerto Ricans have already started the mass migration. The struggling economy has allowed for the largest migration of Puerto Ricans to the mainland since the 1950’s. From 2010 to 2013 alone, more Puerto Ricans have left the island than in the ‘70s, ‘80s and ‘90s—combined. The only companies that are making money right now are moving companies. Good for them! Nonetheless, with the population of Puerto Rico diminishing, this allows room for Jurassic Real-World construction.

Wages are another issue to point out. The island’s implementation of the federal minimum wage, intended to protect the workers, has protected workers out of the job. Instead of allowing people to make four or five bucks an hour, able-bodied workers are unemployed; for Puerto Rico, that’s over 12%. To illustrate how disproportionately high the minimum wage is; the minimum wage accounts for 77 percent of PR’s median hourly wage. Just to compare, the minimum wage only accounts for 38 percent to 54 percent of the median hourly rates here in the states.

The Fed politely recommends to “reexamine the minimum wage” and to implement a ‘sub-minimum wage’ to get people working. The island’s economy has lacked competitiveness for several years, and the Fed pins a lot of the blame on the minimum wage. Due to a deteriorated education system, the island is full of low-skilled workers that are too expensive to be hired.

The government has, instead, responded to the high unemployment and low wages by expanding the welfare state. It has also increased the residents’ dependency to it. With Puerto Rico’s labor participation rate being 20% lower than the states and welfare payments now accounting for 40% of the island’s personal income, it would be political suicide for a politician to mention either removing or decreasing the minimum wage. Indeed, despite the Fed’s argument against Puerto Rico adhering to the federal minimum wage laws, many Puerto Rican bureaucrats and the Obama administration still strongly advocate for increasing the wages to $10.10 an hour. Perhaps a dinosaur theme park could spur some labor participation instead?

Puerto Rican GDP

Puerto Rico’s commonwealth status comes with substantial federal income tax benefits for companies and their workers. Over the years, this has attracted many U.S. multinational corporations to come and do business on the island. The U.S. firms on the island make profits, and those profits are repatriated, or brought back, to the parent company on the mainland. They get the unofficial “tax break” because they’re stimulating the economy of Puerto Rico.

This is where Gross Domestic Product and Gross National Product are distinctly different. GDP accounts for all of the income generated on the island, which includes everything generated by mainland corporations. Meanwhile, GNP accounts for the income generated specifically by Puerto Ricans that live on the island. In 2010, total GDP for the island was $95 billion—where GNP was only $65 billion. Close to $30 billion came back to the mainland. Definitely not helping the cause.

On the other hand…

Jurassic World was built from 2002-2004 at a cost of $1.2 billion, funded by Simon Masrani. Add some cool Dr. Henry Wu types along with 3-D printer technicians, and now we have some vision. There must be several business-savvy billionaire investors that can see the value in such a theme park.

Not only will this park have the potential for steep profits, but it can be a huge tax revenue source. After construction and heavy investments in dino stem cell research, along with the use of some supply and demand models to figure out how to effectively charge ticket prices, the Isla del Encanto’s debt problem is no mas!

Thanks, but No Thanks

Puerto Rico’s default may not cause much of a rumble in the world, but it has brought light to the struggle of the islanders, especially millennials. Thirty percent of the island’s workers are employed by the Puerto Rican government. College graduates have taken all the appropriate steps to land a government job, but with the very necessary (yet late) budget cuts, millennials have had no choice but to move elsewhere with better prospects. Good luck with that!

In my attempt to lightheartedly solution-ize the (more complicated) economic calamities of Puerto Rico, with a real-life Jurassic World, it shows that governments may have well-intended policies that can really hurt an economy. The minimum wage on the island along with tax-incentives for multinational corporations have been implemented to protect workers and spur the economy. However, it has kept low-skilled workers from getting jobs and has allowed the corporate, fat cats, to make an easier buck.

Thanks, but no thanks. Let’s skip on labor and business “protections” and instead invest in dinosaur protection—like super high walls or those sweet, hamster-ball vehicles that the film’s adventurous brothers almost become indominus food in.

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Published by Kevin D. Gomez

Kevin D. Gomez is an Instructor of Economics at Creighton University and Program Manager at the Institute for Economic Inquiry. He received his B.S. in Economics and Statistics from Florida State University and his M.A. from George Mason University. Trying to pay it forward by helping noneconomists make sense of the crazy world.
View all posts by Kevin D. Gomez

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